The Prius turns 20: A Tale of Two Tales

It was a balmy spring day in March of 1997 when those of us who follow developments in the auto industry descended upon a Tokyo hotel to hear an important announcement from Toyota about a new engine system.

“Important,” of course, is a relative term in the industry. But this announcement, being made by the Japanese market leader and involving an engine technology called “hybrid,” was potentially more important than most. Little did most of us know that separate from its hybrid technology Toyota was working on batteries, which over time would be an integral part of the story.

Hybrids were not new to the industry. They date back to the turn of the century, the previous century, in Europe and names that include Ferdinand Porsche. But these developments and others up through the 1970s and the two Middle Eastern oil crises, which forced the industry to address fuel-economy problems head-on, were mainly for the purpose of demonstrating that the technology worked.

Then in the 1990s, hybrids became the focus of the Clinton administration's "new generation" vehicle program. Following in 2001, they were included in California’s Zero Emission Vehicle (ZEV) Program as a stopgap measure when the state couldn’t meet its zero-emission or pure electric vehicle targets.

California, which often operates independently of Washington on clean-air matters, has been the global leader in promoting zero emission or pure electric vehicles, until recently when new mandates started coming out of China and the European Union.

In their simplest form, hybrids combine two power sources to propel the car – generally a gasoline engine is combined with an electric motor running off a second battery. The car’s main battery continues to operate independently for starting the engine and powering various electrical systems including lighting, wipers and steering. The second battery is rechargeable, much like the battery in your laptop or cell phone.

The Toyota concept is different from previous hybrid concepts because it splits the engine’s power, transmitting it separately to the vehicle’s wheels and to a generator, which in turn converts it into electricity to drive the car’s electric motors or, during braking, to charge the battery. This energy-regeneration-during-braking contributes to fuel-efficiency gains of up to 50 percent over standard cars.

Andy Pollack of the New York Times described the Toyota development in layman’s terms as clearly as anyone: “Power from the gasoline engine is split into two paths - one directly turning the wheels and the other operating an electric generator. The generator’s electricity output can be used to turn a motor that drives the wheels or charges the battery. The proportion of power allocated to each path is automatically adjusted to achieve maximum efficiency.”

Speculation had it that Toyota would adopt the technology for a new car to be named Prius, which it had displayed 18 months earlier as a concept at the 1995 Tokyo Motor Show. “Prius” in Latin means first. And the Toyota Prius would be the first hybrid to be mass-produced when it went on sale 20 years ago this month on Dec. 10, although mass production is also a relative term.

When Toyota launched the Prius as a late market entry in 1997, it produced the car in a small custom shop at its sprawling Takaoka plant in Aichi. Prius production remained there for the next four years.

In the first model year the automaker sold only 323 of the bubble-shaped cars, and most of those sales were not delivered until after the New Year. But analysts had seen enough to award it the “Japan Car of the Year” award.

“No one thought the Prius would succeed in the marketplace so soon,” recalled Koji Endo, director of equity research at Credit Suisse First Boston Securities (Japan), on the occasion of the Prius's tenth anniversary. “The market had a rough timeframe in mind of 20 years.” Thus, 2017.

Management had rushed the car’s launch to take advantage of the publicity surrounding 1997’s Kyoto Conference on Climate Change, held during the first week of December, which set numerical targets on reducing greenhouse gases for the first time. In total, more than 170 countries signed the accord on Dec. 11, the day after the Prius went on sale.

The late Hiroyuki Watanabe, a central figure in the hybrid system’s development who later became a special technical advisor to Toyota's current president, Akio Toyoda, credited the strong leadership of then-president Hiroshi Okuda for bringing the Prius to life a year ahead of schedule; the originally projected launch date was December 1998.

“Without a commitment from the top, we couldn’t have accomplished this,” Watanabe said in a long-ago interview.

Okuda became president in the summer of 1995, several months before the Tokyo Motor Show in October.

As the project shifted into high gear in late 1995, with 2,000 engineers joining the effort, a critical obstacle was the car’s nickel-hydride battery pack.

The battery was the single most expensive component in the first-generation Prius and the main reason the automaker lost, according to analysts’ estimates, Y1 million (nearly $10,000) on each car sold. The battery is still the most expensive component and, for that matter, is the most expensive component in all full hybrids and electric cars.

While the industry’s current focus is on lithium-based batteries and away from nickel-metal hydride types, the 1990s witnessed the beginning of a shift to nickel-metal hydride from traditional lead-acid. The reason: lithium batteries hold 50% more energy than those made of nickel-metal hydrides, which themselves have twice the energy density of lead-acid.

In practical terms, this means that electric cars powered by lithium batteries can run longer distances than both nickel-metal hydride and lead-acid batteries; the same holds for nickel-metal hydride over lead-acid. The problem is: lithium batteries are expensive.

General Motors’ EV1, the automaker’s iconic electric car made famous in the documentary “Who Killed the Electric Car,” was hampered by its use of a lead-acid battery. In production for only four years in the late-1990s, the car initially had a range per charge of only 70 miles (112 km) in city driving, clearly not enough. Management thus switched to nickel-metal hydride, boosting range to more than 100 miles (160 km).

The supplier of the new battery, which would become an important part of the Prius story, was a Michigan-based startup named Ovonic Battery Co.

Ovonic, a subsidiary of Energy Conversion Devices Inc., entered into a joint venture with GM in 1994 to manufacture nickel-metal hydride batteries for electric cars. Separately, it entered into technical agreements with several of the world’s leading battery manufacturers including names like Varta in Europe, Duracell in the U.S., LG Chem and Samsung in South Korea and GS Yuasa, Hitachi Maxell and Matsushita Battery in Japan – in total, more than 30 companies around the world.

Japan already had staked out a leadership position in nickel-metal hydride batteries for small applications including consumer electronics and early-generation handheld phones and laptops, the latter carried in so-called “lugging cases” because of they weren’t so small.

Without going into detail about the main problem area, the battery’s material mix, suffice it to say that moving upmarket to cars was not a simple matter.

Matsushita Battery Industrial Co., a development partner with Toyota, ran into trouble and sought assistance from Ovonic.

Toyota had set up two development tracks – one with a “keiretsu” supplier, Toyota Automatic Loom Works Ltd. (later renamed Toyota Industries Corp.) and a second with Matsushita Battery, a wholly owned subsidiary of Matsushita Electric Industrial Co., which was consolidated into Matsushita Electric in 2008 and reformed as Panasonic Corp.

In December 1996, several months before the hybrid system announcement, Toyota entered into a joint venture with the two Matsushita group companies. Named Panasonic EV Energy Co., the joint venture would supply nickel-metal hydride batteries to Toyota and Honda for the RAV4 and EV-Plus electric cars, both introduced in 1997, the same year as the Prius.

Fast-forwarding to 2017: This summer I had occasion to attend an automotive conference in northern Michigan. The name of one of the speakers, Subhash Dhar, seemed familiar.

After Dhar's talk, we exchanged business cards and concluded that we may have spoken many years ago. Sure enough, I found an email dating back to June 1998 thanking him for talking to me.

It turns out that Dhar was the founding president of Ovonic (he is now a consultant) and that his former company not only licensed its technology to Matsushita Battery, but was involved in a legal dispute over an alleged patent infringement.

At the time, I was writing about Panasonic EV Energy Co.

The long and the short of the story is that Matsushita Battery’s licensing agreement was for small applications, not cars; thus the legal challenge and eventual cash settlement paid to Ovonic.

And although Matsushita Battery and later Panasonic EV Energy Co. made improvements in the technology, it didn't negate the basic patent. "If I have a patent on a tire and you improve the tread," explained Dhar, "you still need my tire."

Sounds reasonable, although I suspect it's more complicated.

Grady Loy, an in-house attorney for a large Japanese energy company and FCCJ member, did a patent search for me and found a patent under the name Stanford Ovshinsky, the legendary American inventor and founder of Energy Conversion Devices.

In an interesting aside, Dr. Krishna Sapru, Dhar's late sister, is listed on the patent with Ovshinsky. Dr. Sapru herself IS a prominent inventor.Why is any of this important?

Because: By the time the Prius turned 20 this month, Toyota will have sold 11 million hybrids globally including 4.3 million Priuses. Honda ranks a distant second with cumulative sales of 2 million. No one else is close. And of Toyota’s 11 million sales, an estimated 98 percent are fitted with batteries using Ovonic’s basic technology.

And they were produced, almost all of them including this year’s 1.5 million units, by the joint venture company now named Primearth (no longer Panasonic) EV Energy Co.

In addition to nickel-metal hydride batteries, Primearth has begun producing lithium batteries for “eco” versions of the Prius and is reportedly conducting a feasibility study on producing lithium batteries in the U.S. as Toyota is preparing for the eventual shift away from nickel-metal hydride to lithium.

No timeframe has been disclosed, but insiders speculate that a plant will be up and running some time after 2020 and before 2025.

This is not to be conflated with reports that Toyota is planning to introduce a solid-state battery, the final frontier, shortly after 2020. Experts think the timeframe Toyota has set for solid state is too optimistic.

Also worth noting, global sales of hybrid and pure electric vehicles dating back to the first electric "carriages" in the 19th century will approach 17 million units by the end of this year. Nearly two out of three of those are Toyotas. Slightly more than 10 percent are pure electrics. Toyota has no pure electric car in its lineup – for the moment.

Toyota is also the only company to make a profit from hybrid and electric car sales. Everybody else depends on subsidies. And even Toyota would lose money on its most “electrified” car, the Prius Prime, without subsidies. The Prime, unlike the standard Prius, can operate as a pure electric car for short distances. It is not a pure electric, however.

And the reason is battery costs, which are still prohibitively high. For pure electric cars like the Nissan Leaf, Tesla Model S and BYD e6 in China, batteries cost upwards of $10,000 (Y1.1 million) if the carmakers hope to deliver a 200-mile (300-km) range, the minimum distance needed to compete with conventional cars.

It's going to happen, but perhaps not as quickly as many of the prognosticators speculate.

"Looking back,” says Endo, now with SBI Securities, “I think we have to give huge credit to Toyota." And to a battery startup company in Michigan.